Alistair Fairweather

Are they Finnish?

2010-01-22 08:17

For two decades the name Nokia has been synonymous with quality cellphones. With a world market share that peaked at 40% in 2007, chances are that everyone reading this has owned one at some point. So why does it seem so flustered at the moment?

Case in point is its new mapping and navigation software - Ovi Maps. It essentially turns your phone into a high-end GPS with turn by turn directions for both driving and walking. Ten years ago Nokia would have charged for such a privilege, but now it's "for free, forever".

Then again ten years ago no one would have guessed that its three most threatening competitors would be Apple, Google and an obscure Canadian pager company called Research in Motion.

What's so threatening about this trio? They account for less than four percent of global market share - how worried can Nokia be?

The key is the nature of that four percent. It represents a sizeable chunk - around 35% - of the smartphone market. These are the more advanced phones that typically let you do things like browse the web, send e-mails and download useful bits of software called applications (or "apps").

Since most of the world has been saturated with basic cellphones for a good five years now, this smart phone market is the only one that is growing with any kind of vigour.
And while Nokia started on solid footing with 50% of the market, it has been losing big chunks of it to Apple's iPhone, RIM's Blackberry and Google's Android-powered range of phones.

These losses have hit its bottom line hard. It made $5bn profit in 2008, versus RIM's $1.8bn. Considering that it turns over five times as much revenue and has 20 times the market share, that has to be galling for the Finnish giant.

Apple's buoyant profits are equally insulting, though they are muddied by other products like iPods and Macs. But even worse than Apple and RIM, who at least compete as manufacturers, is Google who seeks to undermine Nokia's entire platform.

Google is betting that the future of cellphones (or at least profits from cellphones) is in services, not hardware. That's why it's essentially giving away its Android operating system - because it knows it will result in yet more loyal Google users to whom it can both advertise and sell premium services.

Nokia isn't run by stupid people. They saw this coming as early as 2006 when they started acquiring mapping and location companies like gate5 and Navteq.

They have also opened their own "app store" to compete with Apple and Google's and made innovative deals with the recording industry with their "comes with music" service. But none of this has arrested Nokia’s steadily declining numbers.

At this rate, if it's not careful, Nokia may be stuck doing the heavy lifting of supplying basic handsets to the masses - something Chinese and Korean handset manufacturers do just as well and cheaper.

Is this the beginning of the end for the Finns? It's really far too soon to tell. At the moment they are struggling to turn the global ship that is Nokia in the changing tides of the market. But the Finns also have a reputation for tenacity and adaptability. I wouldn’t bet against them just yet.

Send your comments to Alistair

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